The BBC licence fee is becoming "harder and harder to justify", a committee of MPs has said.
The corporations' governing body - the BBC Trust - and its chair Rona Fairhead also came under fire from parliamentarians.
The Commons Culture, Media and Sport Committee called for the trust - which has "failed to meet expectations" - to be abolished, in its report on the future of the corporation.
Hours before the publication of the report, the chair of the Public Accounts Committee Margaret Hodge used a hearing about the BBC's buildings to highlight "question marks" about the role of Ms Fairhead at the corporation after allegations HSBC's Swiss branch helped wealthy customers dodge tax.
Ms Fairhead - a member of the bank's board since 2004 - took over at the trust after Lord Patten stood down last year.
Ms Hodge said: "There are clearly question marks arising about her role", adding that the HSBC allegations "raise issues that somebody should be looking at" at the BBC.
The Culture, Media and Sport Committee report called for a slimmed-down BBC, saying it should "reduce" its content in over-served areas or where its "public service characteristics" were "marginal".
"The BBC needs to be able to make bigger, braver decisions on its strategy and inevitably must do less in some areas."
End criminal penalties
The committee recommended an end to "anachronistic" criminal penalties for non-payment of the licence fee, saying non-payment should be pursued through civil courts.
It said in the short-term there was no better alternative to the licence fee, currently set at £145.50, but that a German-style levy on all households, regardless of whether or not people watched live television, was its "preferred alternative".
As a minimum, it said the licence fee - which was not currently required to watch iPlayer - must be amended to cover "catch-up television as soon as possible".
The report said: "We believe that the forthcoming round of charter review should not rush profound changes such as the abolition of the licence fee model but the BBC must prepare for the possibility of a change in the 2020s.
"We recommend that as a minimum the licence fee must be amended to cover catch-up television as soon as possible."
The report said "public trust in the BBC dipped" as a result of recent controversies including "excessive severance payments" which saw George Entwistle receive £450,000 despite only 54 days as director general, the £100 million failed Digital Media Initiative, the Jimmy Savile scandal and a Newsnight investigation that led to the late Lord McAlpine being wrongly accused of child abuse.
'Disasters of its own making'
Committee chair John Whittingdale said the BBC had "suffered from a succession of disasters of its own making" over recent years but it "remains a widely admired and trusted institution".
He said: "In the short-term, there appears to be no realistic alternative to the licence fee, but that model is becoming harder and harder to justify and sustain."
He added: "The BBC has tried for too long to be all things to all people - with the rapid changes in communication and media technology and markets and changing audience needs and behaviours, this no longer works."
He said the trust "has failed to meet expectations and should be abolished" saying it was "too close" to the BBC and blurred "accountability".
The committee praised BBC children's output, saying without the corporation "many younger people would have to rely largely on a diet of acquired US television programmes".
The future of BBC3
On BBC3, which the corporation wants to move online, the MPs said it was "right that the BBC Executive is considering alternative ways to reach BBC3's target audience".
The committee praised the broadcaster for making savings without denting audience appreciation of its services, but said it needed to be "bold and upfront" about further cuts and it "should aim to be a better, more transparent, self-critic."
It also recommended watchdog Ofcom become the final arbiter of complaints over BBC content.
A BBC spokesman said: "This report confirms the importance of the BBC in national life and recommends maintaining and modernising the licence fee, something we have said is necessary.
"We're grateful to the committee for endorsing our record for efficiency and maintaining the quality of programmes and services, and note members overwhelmingly voted against moving to a subscription funding model."
But Professor Steven Barnett, who gave evidence to the committee, criticised the report, saying that the recommendations would damage the BBC.
He criticised the recommendation for an independent Public Service Broadcasting Commission (PSBC) to replace the BBC Trust, assess BBC performance, determine the level of public funding allocated to the BBC and withhold funding as an "ultimate sanction".
"The ultimate aim of this report appears to be a smaller, poorer, less publicly attuned BBC which will simply be filling in the spaces left by commercial competitors, rather than a thriving and dynamic institution which serves its audiences and operates in the public interest.
"It seems to be aimed more at appeasing the BBC's competitors than promoting the interests of consumers and citizens," the professor of communications at the University of Westminster said.
Food for thought
A BBC Trust spokeswoman said: "This report highlights a number of issues and challenges that the Trust recognises and that we are seeking to address, and we agree that there must be robust internal governance and independent regulatory oversight of the BBC.
"Charter Review will be when this and other issues are debated thoroughly, but we welcome this thoughtful and considered early contribution.
"In the meantime, the Trust will continue to argue for a BBC that delivers accurate, independent and high- quality content that provides something for everyone, underpinned by a universal funding model."
BBC director of strategy James Purnell said the corporation welcomed the report.
"We think some kind of universal fee like the licence fee is the right way of funding the BBC," he said.
"We have said for a long time that it should modernised.
"We actually put a different proposal. At the moment you have to pay the licence fee if you watch live on any device, but if you are watching catch-up on your tablet for example, that is all you ever watch, you don't have to pay the licence fee.
"Our proposal is that that should be closed through legislation. This is another proposal, I think a new one."
Mr Purnell told BBC Radio 4's Today programme the licence fee was good value and the existing arrangements should be built on.
"Because we all pay the licence fee, we actually pay less than if it was a subscription system, and we get great programmes and we get the system that we have in the UK ... the system works really, really well," he said.
Shadow culture secretary Harriet Harman said: "We welcome the report as a contribution to an important debate.
"The BBC is an institution of enormous importance. It is loved in this country and admired around the world.
"Labour supports a strong, independent BBC funded by the licence fee. It remains one of our most trusted and respected organisations at home and abroad and the mixed economy of commercial and public service broadcasters working alongside one another has served the UK well.
"As new technology brings great change, the BBC needs constantly to strive to provide better value for licence fee-payers. The committee has laid out some of the key issues that should be considered as part of the charter renewal process."
Campaign group The Voice of the Listener and Viewer said the report was "an important contribution to the debate on the future of the BBC".
Its chairman Colin Browne said: "We share the committee's view that the licence fee remains at present the most effective and practical way of funding the BBC.
"This should be set at a level that provides value for money for licence fee-payers, while enabling the BBC to provide services that reach out to all parts of society and to invest in distinctive original, UK production."
He added that the group believed the BBC "should remain at its present size and scale" so it could act as "the cornerstone of public service broadcasting".
TV on AOL Money
Cost of free TV licences for elderly soars
More Christmas TV for less?
BBC spends £220,000 training staff to use iPhones